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‘Vehicle as “Tool of Trade and “Worksite” insurance exclusion (Aus)

13 December 2023 Donald Dinnie, Norton Rose Fulbright
Donald Dinnie, Norton Rose Fulbright

Donald Dinnie, Norton Rose Fulbright

The circumstances of this public and product liability insurance claim will be familiar to insurers.

An excavator was being transported from a mine site owned and operated by a third party to the insured Kerembla’s depot. The excavator had been loaded by employees of Kerembla onto a back of a trailer attached to a prime mover.

During transit on a public road between the third-party site and Kerembla’s depot there was a collision between the excavator and a bridge owned by the third party.  The bridge owner sued for damage caused to the bridge and Kerembla claimed under the policy.

The insurer accepted that the event fell within the insuring clause but relied upon the exclusion clause to deny indemnity.

The exclusion clause read:

“We do not cover any liability:

3.22      Vehicles

for Personal Injury and/or Property Damage arising out of the ownership, possession or use by You of any Vehicle:

(a)        which is registered or which is required under any legislation to be registered, or

(b)        in respect of which compulsory liability insurance or statutory indemnity is required by virtue of legislation (whether or not that insurance is effected); but Exclusions 3.22(a) and (b) shall not apply to:

(d)        any Vehicle (including any tool, implement, machinery or plant forming part of or attached to or used in connection with such vehicle) whilst being operated or used by You or on Your behalf as a Tool of Trade at Your premises or on any Worksite.

(e)        the delivery or collection of goods to or from any Vehicle.

(f)         the loading or unloading of any Vehicle.

(g)        any Vehicle temporarily in Your custody or control for the purpose of parking.

(h)        Property Damage caused by or arising out of the movement of any Vehicle (which is required to be Conditionally Registered in accordance with the law of any State or Territory in Australia) in the event of Your inadvertent and unintentional failure to effect Conditional Registration.”

                        (Emphasis added)

Kerembla was successful in the trial.  We discussed that judgment here.

On appeal the insurer argued that:

  • the insured risk is damage to property arising out of use of a vehicle required to be registered or have compulsory insurance and the writeback in the exclusion did not apply to the prime mover and the trailer in the circumstances giving rise to the claim;
  • the definition of Tool of Trade contained a second and third negative requirement, namely that the Vehicle which is a tool of trade must not be travelling to or from a Worksite and that it must not be a Vehicle that is used to carry goods to or from any premises;
  • and the definition of Worksite could not properly be understood to include the road where the accident took place.

The appeal court said that there was nothing discordant nor uncommercial about the writeback applying to generally to Vehicles as defined.

A Vehicle as defined included the Prime Mover and Trailer, both of them being types of machine on wheels.  It also included the Excavator being a type of “Machine on self-laid tracks”.

The construction adopted by the lower court in respect of Tools of Trade was said the court, not only far from commercially absurd, but preferable.  It was accepted that the Prime Mover and Trailer came within the definition of Tool of Trade defined by the reference to a Vehicle. 

The court said that even if a contrary constructural choice was possible, the conclusion was consonant with preference being given to an available reading that limits rather than expands the ambit of the exclusion clause.

The insurer contended that the definition of Worksite requires that the “site where work is performed for/or in connection with the Business” be identified and then to add,, “all areas surrounding such premises or site or areas in between such areas or site”. The court said that one should avoid interpretations which are devoid of common sense.  It was perfectly rational that the parties in the position of insurer and Kerembla would bargain for a broad or extended definition of Worksite, including areas between premises and a site.

Given that the term Worksite describes places where Vehicles are used, it was far from obvious that the parties would bargain to exclude cover in relation to areas between parties and sites, such as roads, where those Vehicles are driven. 

The court said that the lower court’s approach made better common sense “because it treats non-contiguous premises or sites that are part of a single operation (commonplace in the mining industry) as a single “Worksite” provided that they are places that “You shall use in connection with such work”.”

Accordingly, the court was satisfied that while a Vehicle is travelling on a work journey from a work premises to a work site it is always on a Worksite.  The court said that the fact that the work journey involved the use of a public road, being the most direct route between the third-party site and the depot was “neither here nor there”.

In argument, the insurer also sought to challenge the conclusion that Kerembla’s own premises fell within the definition of Worksite.

The court agreed with the trial court’s approach.  The insurer sought to rely on the distinction between “your premises or on any Worksite” in the writeback provision, and the definition of “Tool of Trade”.  That distinction was not included in the definition of Worksite which then feeds into the writeback provision.  The court said that the straightforward meaning of the words employed in the definition of Worksite together with the breadth of the definition of Business had the necessary result that “Worksite” would always include premises or sites where work is performed for and/or in connection with the Business.  The Kerembla premises fell within the definition of Worksite as it was engaged by the relevant writeback clause.

The definition of Worksite had to be given its natural and plain meaning rather than seeking to import words to exclude from that definition premises that also satisfy the description “Your premises”.  That approach resulted in reading the writeback in a way that limited rather than expanded the exclusion clause which it qualified.

The appeal was dismissed, and the claim was payable.

First published by: Financial Institutions Legal Snapshot

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